The Town is currently in fiscal stress, due to the Board's failure to adopt realistic budgets over the past four years. The Town's combined year-end fund balance for its five major operating funds was a $2.2 million deficit at the end of 2012. This resulted from overestimated revenues in 2009 and 2010 and underestimated expenses in 2010 and 2011. The town-wide general fund balance deficit increased from $384,000 in 2009 to a $1.4 million deficit at the end of 2011. To cover operating expenses, Town officials loaned moneys between multiple funds, resulting in $10.3 million of outstanding interfund loans at the end of 2012. Further, the sewer fund's fund balance dropped from a surplus of $765,000 in 2009 to a $1.3 million deficit in 2012, primarily because sewer revenues were not sufficient to cover operating costs. In addition, the town-outside-village general fund had a $2.4 million fund balance deficit at the end of 2012. We also found that the Town did not use nearly $782,000 in donated funds as stipulated by the donors, but instead applied these funds to the Town's general and sewer operations. Town officials did not maintain proper accounting records and did not segregate the donated funds for the exclusive purposes intended.

Village officials have not adopted policies or procedures to govern budgeting practices or the level of unexpended surplus funds to maintain. Although the Board has been provided with sufficient information to develop accurate budgets, the Board has consistently adopted budgets with unrealistic estimates of revenues, expenditures and the amount of fund balance to be used to fund operations. The Board consistently overestimated expenditures and/or underestimated revenues, which caused significant positive budget variances. As a result, although the Board appropriated $3.73 million in fund balance for the general and sewer funds, over $2.9 million of this amount was not used. Consequently, the Village has accumulated excessive unexpended surplus funds amounting to $833,139 and $522,373 in the general and sewer funds, (or 43 and 52 percent of expenditures), respectively. Furthermore, the Board has not developed a comprehensive long-term financial plan, which would be a useful tool to strategically utilize to reduce the excessive unexpended surplus funds in a manner that benefits the taxpayers.

We tested 16 purchases totaling $408,028 made in the 2011-12 and 2012-13 fiscal years. These purchases required bids or quotes, or were purchased from State and County contracts. We found that purchases were not formally bid or awarded by the Board, quotes were not always obtained, and Village officials did not determine if they received the correct State or County contract pricing. The Board's failure to ensure that Village officials obtained bids and quotes in accordance with the Village's procurement policy, and verify that they were receiving the correct State and County contract pricing, resulted in the Village incurring higher costs than necessary for goods and services purchased.

The Board did not develop policies and guidelines for budget preparation and monitoring. As a result, it repeatedly adopted budgets with inaccurate revenue and expenditure estimates, which led to the accumulation of significant surplus funds. Additionally, the Board did not have a long-term plan for identifying fiscal trends, which would have facilitated the budgeting process. We also found that the Board did not adopt an investment policy or develop guidelines over other key financial areas; did not properly authorize interfund advances; and did not provide for timely and/or proper annual audits of the Town Clerk, Town Justice, and Supervisor's office. In addition, the Town's procurement policy does not require the solicitation of written proposals or quotes or other methods for the acquisition of professional services. In 2011 and 2012 the Town paid $314,781 to seven professional service providers without soliciting competition. Town officials were unable to provide the contracts for the payments in 2011 and 2012 for three of the providers.

Our audit revealed that the Board's involvement and scrutiny of financial activities and operations was inadequate, and that the Board and Supervisor were unaware of the inadequate condition of the Town's accounting records. The Supervisor did not adequately oversee and monitor the work of the Budget Officer who served as the Town's bookkeeper and maintained the Town's accounting records. Due to the poor condition of the Town's financial records and reports, the Board was unable to determine the Town's true financial condition or effectively monitor the Town's financial operations. The Board also was unaware that the Town was not in compliance with payroll tax filing or payment requirements for Federal and State liabilities. In addition, the Board did not ensure that the Supervisor had prepared the 2010 and 2011 annual financial reports, and the Supervisor never filed these reports with the Town Clerk or OSC. The Board also failed to perform an adequate audit of the Supervisor's and Town Clerk's books and records.

Internal controls over reserve funds are not appropriately designed or operating effectively. District policy provides that an annual report of District reserves must be prepared and submitted to the Board for review that includes a summary statement of projected use and need of the reserve funds. However, the annual report prepared by the Business Administrator does not include a summary statement. As a result, the Board's ability to monitor the projected use and need of reserve funds could be limited. Currently the District has more than $1 million in a debt service reserve that District officials could not associate with any outstanding debt, and more than $1.1 million in general fund reserves that exceeded reasonable needs of the District.

The Supervisor did not maintain accurate and complete accounting records to properly document assets, liabilities, fund balances, results of operations, or prepare accurate reports that would allow the Board to adequately monitor the Town's financial operations. Although the Supervisor prepared and remitted monthly reports to the Board and AUD's to OSC, these reports were not accurate because they were prepared using the inaccurate and incomplete accounting records. As a result, the Board did not have the information necessary to make informed financial decisions about Town operations.

We found weaknesses in the Court's internal controls and a lack of oversight of the Court's operations by the Justices and the Board. The clerks performed all of the key aspects of the Court's accounting function with limited oversight. Deposits were not always made, and monthly reports were not always submitted in a timely manner. Because of these weaknesses, the Board and the Justices have limited assurance that all moneys collected are accounted for, and there is an increased risk that Court funds could be misappropriated without detection or correction.

While the District does have adequate financial policies, it does not have certain financial procedures in place. The Board has not ensured that procedures concerning certain financial recording and reporting were developed. The Treasurer submits a budget-to-actual financial report to the Board only at the end of the fiscal year and has not filed the required annual financial report with the Office of State Comptroller since the 2008 fiscal year. Although the Treasurer identifies checks that have cleared the bank, he does not perform proper bank reconciliations. The Board authorizes each claim for payment and indicates its approval by affixing Board member signatures to the claims, but the Board minutes do not indicate the approval to pay these claims. In addition, the Board contracts with an independent auditor to perform an annual audit of the Treasurer's records; however, the last completed audit was performed in 2010 for the 2008 fiscal year.

The Board did not adopt a procurement policy as required. In August 2011 the Board adopted a resolution stating that although it is understood that the Town is required to have written policies, the resolution directed Town officials to consult the Office of the State Comptroller's publications for guidance. However, this resolution did not satisfy the requirement to adopt a written procurement policy, where the Board would specify the number of written or verbal quotes or bids to be obtained for various dollar thresholds, among other things. The Board also annually adopted resolutions requiring that it approve all purchases costing more than $1,500; however, these resolutions made no mention of quotes or bids to be obtained prior to such approval. The Highway Superintendent indicated that he obtained quotes for certain purchases, but did not retain them or attach them to the claim for review by the Board prior to payment.

The Board frequently over-estimated budgeted expenditures for the 2009 through 2012 fiscal years, and also appropriated $1 million in fund balance each year which was not fully needed to finance District operations. As a result, only a fraction of the appropriated fund balance was used to fund operations in three of the four years reviewed. None of the appropriated fund balance was used in the other year.

The Board did not establish procedures to help ensure that fuel was dispensed only into Town vehicles and equipment by authorized employees. Furthermore, there were no procedures in place to regularly monitor fuel transactions for reasonableness and ensure that only authorized employees were provided with a user ID. As a result, the Town paid $4,991 for fuel that was obtained by a former employee and used for other than Town purposes.

The financial condition of the Town's highway town-wide fund has declined in recent years from a balance of $88,293 at the beginning of 2008 to a deficit balance of $12,600 at the end of 2012. This decline in fund balance was caused by the Board not adopting realistic budgets and effectively monitoring budgets throughout the year. Additionally, the Board has not established an effective claims auditing process to ensure all claims reviewed and approved by the Board contain adequate support to substantiate they are proper Town expenses. One $1,500 claim was for a piece of highway equipment purchased from the Highway Superintendent's (Superintendent) personal trucking business. We determined that the Superintendent had a prohibited interest in the purchase of this equipment. Further, the Board did not audit the books and records of the Supervisor, Town Clerk, tax collector, and Town Justice as required. Finally, the Superintendent does not maintain inventory records that collectively show the amount of beginning inventory, fuel purchased, fuel consumed, and the balance of fuel remaining. Our analysis of a sample of the Town's gasoline and diesel fuel purchases and recorded usage determined that the Town is unable to account for approximately 2,510 gallons of fuel valued at approximately $8,440.

The Board did not develop reasonable budget estimates for the general town-wide fund and did not properly monitor and control actual activity against those estimates, allowing appropriations to be over-expended. In addition, the Board aggregately over-estimated revenues for mortgage tax by $154,157 and the rental of real property by $77,580 in the three most recent fiscal years (2010-2012). Because of the revenue shortfalls and over-expended appropriations, the general town-wide fund experienced operating deficits in the 2010, 2011, and 2012 fiscal years. Consequently, the general town-wide unrestricted fund balance declined from $450,949 at January 1, 2010, to a deficit of $107,587 at December 31, 2012. Finally, the Board and Town officials have not developed a comprehensive multiyear financial plan to adequately address the Town's operational and capital needs.

The Board disbursed $102,275 from the water system improvement reserve to pay for work associated with the River Street retaining wall project. However, because this reserve was set up as a capital reserve for the improvement of the water system, expending moneys from this reserve for other than its intended purpose, such as for the repair of the retaining wall, was an inappropriate use of the reserve. Although we were informed that this amount is to be repaid upon the receipt of State aid, there is no legal authority to temporarily borrow moneys from a capital reserve to be repaid upon the receipt of State aid. In addition, the Board did not effectively audit all claims under its jurisdiction because it only reviewed the voucher edit lists and did not review each related claim. The Board also did not audit, or cause to be audited, the annual financial report or supporting records of the Clerk-Treasurer. Finally, the Board does not monitor the remote access of software vendors or the Village's information technology consultant who has the ability to modify or destroy financial application data. Further, the Board has not developed a comprehensive disaster recovery plan, back-up copies of data are not stored in a secure off-site location, and the Village does not periodically verify that the system can be restored from the back-up copies.

The Board needs to improve its budgeting practices and enhance its oversight of the Town's finances. The Board has not adopted realistic budgets for the general fund primarily because it repeatedly under-estimated revenues. As a result, at the end of 2012, fund balance in the general fund had increased to $741,000 or 67 percent of the ensuing year's appropriations. In addition, portions of the fund balance set aside as a funding source for subsequent years' budgets were not used as planned. We also found that the water and sewer districts were not properly funded, resulting in the general fund having to make interfund loans to these districts to support their operations. Finally, the Board did not have a policy to govern the level of fund balance that should be maintained and has not adopted long-term financial plans. Without multiyear operational and capital plans, the Board's ability to manage the Town's fiscal stability is diminished.

The Board and District management are not developing realistic expenditure budget estimates. For the fiscal years ended 2008 to 2011, the District spent an average of $1.8 million less than budgeted appropriations each year. For the fiscal year ended 2012, the District's actual revenues and expenditures were far closer to budget estimates, receiving $60,000 less than budgeted revenues and spending only $702,000 less than budgeted appropriations. The District's annual budgets also included the use of fund balance to finance operations in order to keep the real property tax levies at amounts the Board considered to be reasonable. For a five-year period, the Board adopted budgets that included aggregate appropriated unexpended surplus of more than $4.7 million, an average of more than $940,000 annually, which should have decreased the amount available to appropriate. However, very little of the planned amount was used because, for the same period, actual operations generated surpluses totaling more than $5.3 million.

The Board did not adequately manage the water fund's financial operations. The Board consistently over-estimated expenditures and revenues, which initially resulted in an excessive fund balance, but has since caused fund balance to significantly decrease over the past two years. Although capital expenditures were made to repair infrastructure and decrease water loss, no long-term capital plan has been put into place to address financial needs and further capital improvements. Without proper budgeting and capital planning, this resulting decrease in fund balance may lead to fiscal stress in the water fund.

The Board did not establish reasonable financial plans for three of its major operating funds but repeatedly relied on transfers from the general fund and appropriations of fund balance to finance operations in the highway and fire protection funds. Although Town officials accounted for these three funds individually, they maintained a consolidated checking account for the combined funds and paid for large purchases without verifying that the fund balance was actually available. As a result, the financial condition of the three funds deteriorated significantly over the past four years. While the Town's overall tax levy for the general, highway, fire protection, library, lighting district, and water funds was relatively steady over the past four years, the general and highway funds' budgeted tax fluctuated significantly and failed to consistently fund operations.

We found that the Board and District officials did not adopt and implement appropriate policies and procedures for the extra-classroom activity fund. As a result, six student clubs were inactive but had deposits totaling $4,450 that were not closed out. In addition, the student treasurers lacked documentation/accounting records for remittances totaling $10,188 and documentation, such as itemized receipts and payment orders, for disbursements totaling $16,736. The central treasurer lacked duplicate receipts for remittances totaling $13,188 and documentation, such as itemized receipts and payment orders, for disbursements totaling $8,965. These deficiencies increase the risk that receipts will not be deposited and disbursements will not be appropriate.